Tax Season Survey of Main Street Accountants Raises Alarms for Small Business Clients

The Avalara Accountants Confidence Report points to difficulties ahead for small businesses to access capital, increase profits, raise revenues, hire new employees, and control costs

Avalara, Inc., a leading provider of cloud-based tax compliance automation for businesses of all sizes, today announced the release of a new survey of over 500 Main Street accountants representing more than 100,000 small businesses. Survey responses revealed that looming economic headwinds could create challenges for small businesses in the next 12–18 months. The survey, conducted during the 2023 tax season, uncovered that accountants believe small businesses will face challenges when it comes to accessing fresh capital, increasing profits, managing payroll costs, weathering supply chain difficulties, and hiring new staff.

The 2023 Avalara Accountants Confidence Report, produced in conjunction with CPA Trendlines, queried trusted advisors with clear insights into the financial health of small business clients. The report measures accountants’ attitudes and outlook on a variety of pressing issues, leading with sentiment on the health of small business clients, and providing a read on the national economy and the state of smaller accounting practices. Accountants were surveyed as they combed through business clients’ financials and prepared their tax returns.

Small businesses heading into uncharted territory

The survey was conducted from March through April against a backdrop of continued high inflation, stock and bond market woes, heightened interest rates, a looming recession, tightening credit, and a bourgeoning banking crisis.

When asked how 2023 to date compared to 2022 for small business clients, 39% of accountants noted “much” or “somewhat better,” while 45% reported “about the same.” But trusted advisor sentiment changed significantly when asked how the economy would shape up for small business clients over the next 12–18 months, with 61% indicating “much” or “somewhat worse.”

Digging deeper into key drivers of growth and profitability, the survey looked at how economic conditions will affect the ability of small businesses to:

• Access fresh capital: 72% of accountants said clients’ ability to access fresh capital would be “much” or “somewhat worse” over the next 12–18 months.
• Raise revenues: 49% of accountants said clients’ ability to raise revenues would be “much” or “somewhat worse.”
• Increase profits: 61% of Main Street firms surmise that small business clients’ ability to increase profits will be “much” or “somewhat worse.”
• Manage payroll costs: 63% of accountants said clients’ ability to manage payroll costs would be “much” or “somewhat worse.”
• Hire new employees: 60% of firms surveyed said small business clients’ ability to hire new employees will be “much” or “somewhat worse.”
• Adopt new technology and automation: Accountants were more upbeat about the ability of small business clients to adopt new technology and automation, with 70% responding “about the same,” “much” or “somewhat better.”

Accountants bearish on national economic outlook

It comes as no surprise, given the survey time frame, that accountants looked at current economic indicators and reacted with due concern and caution around prospects for the national economy over the next 12–18 months: 70% predict the economy will be “much” or “somewhat worse.”

“Line up any capital or loans needed ASAP”

In written comments, survey respondents advised their clients to:

• “Hang on to cash and stay on top of A/R.”
• “Utilize technology where possible.”
• “Add overhead costs only if assured that the associated revenue is not transitory.”
• “Stay liquid, reduce loan payments.”
• “Be nimble to respond to changes. Take care of your good employees. It is difficult to find new people and expensive to train them.”
• “Cash is king. Do not be afraid to increase fees.”
• “Line up any capital or loans needed ASAP.”

“Our joint survey with CPA Trendlines uncovers a fuller picture of the existing headwinds and economic uncertainty faced by small businesses, from the distinct vantage point of professionals with the most direct view into clients’ businesses,” said Sona Akmakjian, Head of Global Strategic Accounting Partnerships at Avalara. “Never before have small businesses been so in need of hands-on business advisory from their accountants, from input on staffing to advice on taking lines of credit and dealing with inflation costs. As these clients navigate their way through turbulent times, they’ll depend increasingly on their trusted advisor — the pressure is on for accountants to strengthen client relationships, level up their valued advisory capacity, and leverage all available tools and resources to stand by small businesses on the front lines.”

“Main Street accountants have a unique view of economies, both local and, in the aggregate, national,” said Rick Telberg, CEO of CPA Trendlines. “This year’s Accountants Confidence Survey represents the cumulative sentiment of over 500 accounting professionals representing over 100,000 small businesses, speaking from a direct and objective view of clients’ debits and credits columns, cash readiness, credit worthiness, staffing situation, and other key metrics of business health. And as these professionals opine on a rocky road ahead for clients over the next 12–18 months, they also understand the new expectations placed on them by clients to be better business advisors, roll up their sleeves, and help chart a course through a maze of hurdles to get clients back on terra firma. Never before have small accounting practices been expected to wear so many hats for the businesses they serve.”

Read more about the 2023 Accountants Confidence Report here – use code avlr.

Methodology

Developing and Fielding the Survey Tools: Survey questions were field-tested in February 2023 to a proprietary CPA Trendlines list of accountants, bookkeepers, CPAs, payroll agencies, and IRS enrolled agents. Early phases of the questions were used to develop the final survey tool, which was launched March 24, 2023. The survey was closed April 24, as accountants wrapped up Tax Season 2023. The preliminary data obtained from more than 300 respondents in February, when compared with the data gathered in the run-up to Tax Day April 18, suggests a sharp change in the accountants’ sentiments. Whatever optimism they may have had in February was falling off markedly only a month later as gloomy economic news piled up.

Confidence Levels and Margins of Error: At 500 validated responses, generally accepted principles suggest a +/- 4-point margin of error at a 90% confidence level and a 5-point margin of error at a 95% confidence level.

Intrinsic Bias: There is a natural bias in the nature of the survey that favors responsiveness from accountants who are operating as going concerns, over those who may have exited the industry, and it favors respondents who are interested in the results, over those not interested in the results.

Demographics: Public Accounting, Tax, Bookkeeping; Firms with up to 50 Employees; Managing Partner, Partner, Owner

Terminology: “Small Business” — The term used in this study is defined by professional accountants’ general practices and common parlance. The Small Business Administration codifies it as commercial establishments with one to 1,500 employees or annual revenues of up to $40 million per year.

Geographic Distribution: Results generally reflect the geographic distribution of public accounting firms in the U.S., with natural concentrations in high-density states such as California, New York, Illinois, Ohio, Texas, and Florida.

Respondents: Prospective respondents were sampled from the 537,000 panelists maintained by CPA Trendlines Research, a research and business intelligence service for the tax, accounting, and finance sectors. CPA Trendlines also provides consulting and research services to accounting firms and the vendors who serve them. CPA Trendlines is a service of Bay Street Group LLC, based in New York. Survey prospects were incentivized with a promise that they would be among the first to see the top-line results, which they understood could help their business, their clients, and the profession. No other incentive was offered.

About Avalara

Avalara helps businesses of all sizes get tax compliance right. In partnership with leading ERP, accounting, ecommerce, and other financial management system providers, Avalara delivers cloud-based compliance solutions for various transaction taxes, including sales and use, VAT, GST, excise, communications, lodging, and other indirect tax types. Headquartered in Seattle, Avalara has offices across the U.S. and around the world in Brazil, Europe, and India. More information at avalara.com.

About CPA Trendlines

CPA Trendlines delivers data-driven, actionable business intelligence to professional tax, accounting, and finance professionals to help build their firms, to enhance their careers, and to better serve their clients.

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